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ACCA Strategic Professional · Strategic Business Reporting (International) · Discussion of issues in financial reporting

The IASB is considering a proposal that would require entities to measure all assets at current value. Which statement best reflects how the 2018 Conceptual Framework treats the choice of measurement basis?

The Conceptual Framework does not mandate one basis. A measurement basis is chosen by considering the relevance and faithful representation of the information it gives, other qualitative characteristics, the cost constraint and how the asset contributes to future cash flows, so neither historical cost nor fair value is universally required.

  1. AHistorical cost must be used because it is the only reliable basis
  2. BFair value must be used for all assets to give relevant information
  3. CThe basis is selected by considering the information it produces for the statement of financial position and profit or loss, including relevance and faithful representation, cost constraints and the asset's contribution to cash flowsCorrect
  4. DThe basis is chosen by each entity's auditor

Explanation

The Conceptual Framework describes several measurement bases (historical cost and current value) and does not prescribe a single one. The IASB selects based on relevance, faithful representation, enhancing qualitative characteristics and the cost constraint, including how the asset contributes to future cash flows. Mandating only one basis contradicts this.

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